RBA holds rate at 1.5 per cent

RBA holds rate at 1.5 per cent

The Reseve Bank keeps rates on hold in October, but NAB director of economics David de Garis says we should expect two hikes in 2018.

Zuckerberg asks forgiveness amid Russia probe

ASX winners and losers – a snapshot

The stand out listings traded on the ASX captured at key moments through the day, as indicated by the time stamp in the video.

The Australian dollar traded at US78.6¢, climbing through the session after hitting a low of US77.9¢ on Tuesday afternoon in the wake of the Reserve Bank of Australia’s monetary policy decision.

Unlike the US sharemarket, which has started the month of October by notching fresh record highs, the ASX is struggling to stay within the trading range it has been trapped in since the middle of May.

Investors are worried about the prospect of higher interest rates coupled with lacklustre earnings growth as an economy burdened with debt-laden consumers and low wage growth struggles to make headway.

Retailers, both discretionary and non-discretionary, were under pressure on Wednesday, with Myer down 3.1 per cent and Harvey Norman lower by 3.4 per cent, while supermarket owners Wesfarmers and Woolworths fell 0.8 per cent and 1.8 per cent, respectively.

«Recent economic data has encouraged consensus to become more constructive on the outlook for the Australian economy in 2018,» Morgan Stanley analysts wrote in a note to clients. «However, we believe that challenges for Australian households will see a further decoupling from the global recovery.»

The broker’s research «suggests that higher mortgage rates will put more pressure on household consumption.»

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Bank stocks fell sharply again on Wednesday, with Westpac down 0.9 per cent and NAB 1.2 per cent lower. ANZ was the worst performer in the sector over the session, ending the day off 2.1 per cent after a broker downgrade.

CBA, however, outperformed peers, adding 0.3 per cent after analysts at Bell Potter upgraded the lender to buy, saying that the market had over-reacted to the potential fines from its alleged non-compliance with anti-money laundering regulations.

Insurer QBE was taking back some of the previous session’s steep losses trading up 2.8 per cent after Morgan Stanley analysts said «it’s time to buy». Rival Suncorp also advanced, adding 1.2 per cent.

Miners were lower. BHP dropped 0.6 per cent, Rio Tinto declined 1.5 per cent and Fortescue lost 2 per cent.

Lithium miner Galaxy Resources bucked the downward trend, however, rising 2.4 per cent as it advanced for the fifth day in a row. Galaxy jumped almost 6 per cent on Tuesday after inking a supply deal with Tesla battery supplier Panasonic.

A2 Milk extended its recent powerful run, climbing another 5 per cent after it was upgraded to buy at Goldman Sachs.

Stock watch

CBA

Bell Potter upgraded CBA to buy from hold on Wednesday, with the broker saying that value has returned to the stock after its recent price decline. The bank’s market value has plunged by about $14 billion since AUSTRAC launched proceedings against the bank on 3 August, the broker noted.

«After assessing some key US and UK [anti-money laundering] cases, we conclude that the most likely maximum penalty would be in the $1.2 billion to $1.3 billion range,» which suggests «the market has materially overreacted to AUSTRAC’s actions».

The broker also said that the penalty will be more than covered by proceeds from the likely divestment or IPO of CBA’s global asset management business, Colonial First State Global Asset Management, which is estimated to be worth up to $4 billion.

Movers

Milk

After a spectacular run, a «disappointing» milk auction resulted in a 2.7 per cent drop in whole milk powder prices in a GlobalDairyTrade auction. New Zealand milk solids futures have surged 20 per cent since their lows in March to $NZ6.70 a kilogram. The auction confirmed that the only thing that has been holding whole milk powder and butter prices up recently was short New Zealand supplies, ANZ Bank New Zealand rural economist Con Williams said. All up, softer NZ production could still see a milk prices of $NZ6.75, but if not, it seems something around the mid-$NZ6 is more likely.»

Aussie PMI

The CBA manufacturing purchasing managers’ index, or PMI, survey edged up to 53.8 in September from 53.5 in August. The CBA services PMI survey fell to 53.2 points from 54.2 points in August. Readings from both surveys remained over the 50 mark, which separates economic expansion from contraction. «Manufacturing activity is still expanding but it appears that the period of acceleration is over. Nevertheless, panellists report that economic conditions remain favourable and this positive view extends to expectations for the next year,» CBA chief economist Michael Blythe said.

QBE

This year’s 20 per cent share price plunge in QBE has Morgan Stanley analysts saying it’s «time to buy». The accident-prone global insurer’s stock took another tumble on Tuesday when it announced a $US600 million hit to earnings due to losses associated with hurricanes in the Americas and then the Mexican earthquake. «With greater clarity of [around expected earnings for this financial year],and the market not pricing in FY18 earnings upside from premium hikes, in our view now is the time to buy,» they wrote. On a estimated P/E for next year of 9.7, a price-to-book ratio of 0.9 and a 6.7 per cent dividend yield, the valuation is «compelling», the analysts said.

Kiwi property

New Zealand house prices grew at their slowest pace in five years in September as a hard-fought general election and central bank lending restrictions dampened buying. Quotable Value’s residential property price index rose 4.3 per cent in the year to September, the slowest rise since August 2012. House prices in the Auckland region, previously the epicentre of house price inflation, grew at just 0.8 per cent per cent in the year to September – the slowest pace in six years. Slow price growth was compounded by an uncertain period around the inconclusive September 23 election.